4/28/2010 @ 6:00PM

Ventas Chief Debra Cafaro's Recipe For Success

While many of her fellow chief executives stumbled in recent years, Debra Cafaro, CEO of
Ventas
, a real estate investment trust that owns nursing homes and other health care facilities, adroitly navigated through the storm. Her vigilance has resulted in big returns for Ventas’ shareholders: 39% last year and 2,000% over the past decade.

Cafaro, 52, a former real estate and corporate lawyer, is the daughter of a Pittsburgh mailman and is the first in her family to graduate from college. “I’m the American dream,” she says. She attributes much of her success in business to luck, but notes that “you can maximize luck. As Lincoln said, ‘The harder you work, the luckier you get.”’

Cafaro has shown she’s adept at restructuring a floundering company and then growing it significantly.
Ventas
needed intensive care when she took charge in 1999; the sole tenant of its properties was about to file for bankruptcy protection. Cafaro demanded that she play a central role in restructuring the finances of Ventas’ insolvent tenant.

She also restructured Ventas’ lease agreements so the company could receive steady 3.5% annual rent increases, while also dramatically shrinking its debt. Once the turnaround proved successful–a feat few had expected–she began ambitiously growing the company through acquisitions.

But Cafaro demonstrated her most astute ability as a CEO in recent years when she anticipated the deep downturn and avoided the aggressive and risky growth that hurt, and even destroyed, many companies. In mid-2007, just after Ventas completed its fourth acquisition, Cafaro began to see the first signs of trouble in the subprime mortgage market. She told her management team to stop looking for new deals and to quickly “get defensive.”

It was a tough sell. “It had been a ‘grow, grow, grow’ era, and some people, especially young people who’d never been through a downturn before, didn’t like being told to suddenly get very conservative. But I insisted we were facing a very risky environment,” says Cafaro. Proactively she shrewdly raised equity and refinanced debt while her company’s stock price remained high. As a result, Ventas had a very solid balance sheet and plenty of cash when Bear Stearns and Lehman Brothers collapsed a year after she’d predicted the financial crisis.

Known for her ingenuity, pluck and diligent information gathering, Cafaro says she “talks to everyone–hedge fund managers and real estate experts as well as taxi drivers, store clerks and my parents about what they’re experiencing” to gauge the economic climate. And she didn’t sit on the sidelines and wait for the economy to start recovering before she took action.

She urged her senior managers–all of whom have been at Ventas since she recruited them in 2002–not to become paralyzed with fear. She reminded them that health care is something people need in bad times as well as good, and that Ventas had strong cash flows from its leases. “I had to be calm and say that I believed in what we were doing, but in order to be authentic I also had to acknowledge, ‘I’m scared, too.’ I’d never seen such large companies go down.’”

When the stock market–and Ventas’ stock price–plummeted, Cafaro was determined to show she could still raise capital. “Some people believed all real estate was going to zero and that when our debt came due in 2011, we wouldn’t be able to repay it and we’d fail,” she says. She concluded that if she could persuade investors that Ventas was still a good bet, the company would come out of the downturn stronger than before.

Cafaro accomplished her goal–raising several hundred million dollars of both equity and debt–in the first half of 2009, at a time when some companies had little or no access to capital. Over subsequent months, Ventas led the REIT sector as the stock market began recovering.

Ventas, with 505 properties in the U.S. and Canada and a market capitalization of $7 billion at the end of 2009, still has a “lot of leg room” to grow, says Cafaro. And for other executives that want to follow her example, she advises them to “go through some difficult experiences. If you can live through them and learn from them, you have a much better chance of knowing what to do when the chips are down and everyone else is freaking out.”

During the past six years Cafaro has steered the Chicago, Ill., REIT to an annualized 18% total shareholder return, well outpacing rivals. Cafaro’s compensation during that time averaged $8.3 million (including base salary, bonus and exercised options). That lands her in the top 10 in our annual survey scoring executives on how much they did to earn their paychecks.